Macquarie Keeps Inspired Entertainment at Outperform

Macquarie kept its Outperform rating and $7 price target on Inspired Entertainment. According to analyst Chad Beynon's note, the target implies 100% upside from the $3.50 closing price on November 5. Macquarie found the company's third-quarter results better than expectations.

The shares are down 63% this year, while the S&P 500 index is up 7%. Beynon said investors were expecting a large forecast cut, which would be hard for a company with a leverage ratio of 2.8x. However, the company updated its 2026 adjusted EBITDA guidance to $109 million to $112 million from $112 million to $118 million. The main reason for the cut was Brazil's suspension of regulated online betting and gaming. The decline in guidance was about 4%.

In the third quarter, adjusted EBITDA fell 13% to $28.2 million, 2% below consensus. Margin reached a record 46%. Revenue fell 29% to $61.4 million, mostly due to the company's sale of its holiday parks to Genda. Interactive revenue rose 3%.

In the UK, the rise of the remote gaming duty from 21% to 40% in April pushed Entain to chase market share. Flutter cut 1,400 jobs in the UK and Ireland. Macquarie lowered its 2027 EBITDA estimate from $116 million to $113 million. Even so, it noted that this estimate implies about $22 million of free cash flow and a 22% yield. Management said that even if Brazil stays closed, 2027 EBITDA will grow at a low single-digit rate and margin will remain above 45%.

B. Riley cut its target from $8.75 to $6.25, and Citizens JMP cut its target from $9 to $7. According to Macquarie, free cash flow, not guidance cuts, will be what drives the shares from now on.